Update COVID-19 in Indonesia: 365,240 confirmed infections, 12,617 deaths (19 October 2020)
Indonesia Investments Report - October 2020 Edition: Introduction Omnibus Law
19 October 2020 (closed)
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Today's Headlines Manufacturing Industry
In August 2020 we were positively surprised as Indonesia’s manufacturing activity managed to expand (after experiencing five straight months of contraction) despite the country still being in the middle of the unprecedented COVID-19 crisis.
It was not the greatest start of the 3rd quarter for Indonesian manufacturers. In fact, in July 2019, Indonesian manufacturing conditions deteriorated for the first time since January 2019. The IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) fell from a reading of 50.6 in June 2019 to 49.6 in July 2019, below the 50.0 point threshold that separates expansion from contraction.
Activity in Indonesia’s manufacturing sector grew in March 2019 on the back of solid domestic demand. The Nikkei Indonesia Manufacturing Purchasing Managers’ Index (PMI) accelerated to a reading of 51.2 in March, from 50.1 in the preceding month (a reading above 50.0 indicates expansion in the manufacturing sector, while a reading below 50.0 indicates contraction). It also meant that Indonesia managed to outperform its regional peers as the average PMI in the ASEAN counties stood at 50.3 in March. Overall, survey data show a marginal expansion in Indonesia’s manufacturing economy during the first quarter of 2019.
Manufacturing activity in Indonesia contracted in January 2019. It was the first time since exactly a year ago that Indonesia’s manufacturing activity contracted. The headline seasonally adjusted Nikkei Indonesia Manufacturing Purchasing Managers’ Index (or PMI) fell from 51.2 in December 2018 to 49.9 in the first month of 2019, representing largely unchanged conditions in the sector.
Manufacturing activity in Indonesia continued to expand in November 2018. However, the pace of expansion slowed further, for the third straight month, and the November reading was in fact the lowest reading of the past five months.
Indonesia's manufacturing activity continued to expand in June 2018 albeit at a lower level compared to the preceding month. The Nikkei Indonesia Manufacturing Purchasing Managers' Index (PMI) declined from a reading of 51.7 in May to 50.3 in June (slightly above the 50.0 level that separates expansion from contraction in the manufacturing sector). Slower rises in both output and new orders were key reasons that explain the month-on-month decline.
Indonesia's manufacturing sector has seen its contribution to overall Indonesian macroeconomic growth sliding over the past two decades. The cause is the lack of new and innovative products in this sector. This is the conclusion of Ricardo Hausmann, Director of the Center for International Development and a Professor of the Practice of Economic Development at the John F. Kennedy School of Government at Harvard University.
Over the past decades, Indonesia's manufacturing industry has developed from a significant growth engine (for the whole economy) into a less significant one. Prior to the Asian Financial Crisis in 1997-1998, non-oil & gas manufacturing accounted for 30 percent of Indonesia's gross domestic product (GDP). Today, however, the figure is around 18 percent. If we add the oil & gas industry, then the figure rises only slightly to 19.9 percent.
Indonesia's manufacturing activity continued to expand in September 2017, albeit at a slower pace compared to the preceding month. Based on the new Nikkei survey, released on Monday (02/10), Indonesia's manufacturing purchasing managers' index (PMI) was recorded at 50.4 points, down from 50.7 in August (a reading of 50.0 separates contraction from expansion in the country's manufacturing activity).
Rising output and stronger export orders caused a modest recovery in Indonesia's manufacturing sector in August 2017. Indonesia's Nikkei-Markit manufacturing purchasing managers' index (PMI) rose to a reading of 50.7 in August, from 48.6 in July (50.0 separates expansion from contraction in the manufacturing industry).
Latest Columns Manufacturing Industry
Indonesia's Nikkei Manufacturing Purchasing Managers' Index (PMI) eased to 50.7 in March 2018 from a reading of 51.4 in the preceding month (when manufacturing activity touched a 20-month high in Southeast Asia's largest economy). Softer expansion in output and new orders were cited as reason for slowing growth. A reading above 50.0 indicates expansion in manufacturing activity, while a reading below 50.0 indicates contraction.
One method to ignite structurally high economic growth for a sustained period of time in Indonesia is to encourage the development of the country's stagnant manufacturing sector. A thriving manufacturing industry (especially when it can export domestically manufactured products) will accelerate economic growth and generate plenty of employment opportunities (which will then encourage rising household consumption).
Manufacturing activity in Indonesia continued to contract in January 2018 (for the second month in a row) albeit at a slower pace. The Nikkei Indonesia Manufacturing Purchasing Managers' Index (PMI) rose from 49.3 in December 2017 to a reading of 49.9 in January (a reading below 50.0 indicates contraction, while a reading above 50.0 indicates expansion in manufacturing activity).
The manufacturing industry of Indonesia remains in a troublesome state. The latest Nikkei Indonesia manufacturing purchasing managers' Index (PMI) reading declined to 49.3 in December 2017, from 50.4 in the preceding month (a reading below 50.0 indicates contraction, while above 50.0 indicates growth in the country's manufacturing activity). It was the first time since July 2017 that Indonesia's manufacturing activity contracted.
Indonesia is being threatened by deindustrialization. There have been reports that rising minimum wages, the low quality of local human resources, or scarcity of local raw materials have been encouraging companies in certain industries to relocate to other countries in Asia. This partly explains why the manufacturing industry's role toward Indonesia's gross domestic product (GDP) has been on the decline.
Activity in Indonesia's manufacturing industry tumbled into contraction again in June 2017, after having experienced four months of straight growth. The Nikkei Indonesia Manufacturing Purchasing Managers' Index (PMI) declined to a reading of 49.5 in June, from 50.6 in the preceding month (a reading of 50.0 separates contraction from expansion). Contraction in Indonesia's manufacturing sector is particularly blamed on a stagnation in domestic order books.
The first day of the month - in case of a working day - implies that investors can count on the release of several macroeconomic data from Indonesia, specifically inflation and manufacturing activity. Statistics Indonesia (BPS) announced this morning (01/06) that Indonesia's consumer inflation reached 0.24 percent (m/m), or 3.33 percent (y/y), in May 2016. Meanwhile, the Nikkei Indonesia Manufacturing Purchasing Managers' Index (PMI) eased to a reading of 50.6 in May from 50.9 one month earlier. Lets take a closer look at these data.
Indonesia has always been hesitant to join free-trade deals with other nations on fears that domestic industries cannot compete with foreign counterparts, which could lead to an influx of cheaper, yet higher-quality foreign products. During his visit to the White House, Indonesian President Joko Widodo said Indonesia intends to join the Trans-Pacific Partnership (TPP) trade deal. Back home, this statement led to concern. What are the negative consequences for Indonesia when joining this deal?
Statistics Indonesia (BPS) announced today (01/09) that Indonesian inflation has eased slightly to 7.18 percent (y/y) in August 2015, from 7.26 percent (y/y) in the preceding month. On a month-on-month basis, inflation climbed 0.39 percent in August, below analysts’ expectations. Meanwhile, Indonesia’s manufacturing sector continued to contract in August, albeit conditions improved from the preceding month.
One of the key strategies to improve the economic fundamentals of Indonesia is to restructure and strengthen the country’s exports. This restructuring involves the transformation of Indonesian exports from being dominated by (raw) commodities to manufactured exports by developing downstream industries in Southeast Asia’s largest economy, including import substitution industrialization in order to curb the country’s demand for imported products amid Indonesians’ rising purchasing power.
